A.M. Best Revises Outlook to Stable of Société Centrale de Réassurance

August 08, 2014 09:12 AM Eastern Daylight Time

LONDON--(BUSINESS WIRE)--A.M. Best has revised the outlook to stable from negative and
affirmed the financial strength rating of B++ (Good) and issuer credit
rating of “bbb” of Société Centrale de Réassurance (SCR)
(Morocco).

The ratings reflect SCR’s good level of risk-adjusted capitalisation,
strong business profile in the North African markets and explicit
support provided by the Moroccan state. Offsetting rating factors are
the potential volatility in technical profitability arising from a
change in business mix following the withdrawal of mandatory cessions
from January 2014 to SCR from the domestic market and expansion into
regional markets. The revision in outlook reflects the continued
economic stability of the Moroccan state, which provides explicit
support to SCR through a comprehensive loss absorption agreement.

In 2013, following an excellent operating performance that translated
into a net result of MAD 406.8 million, SCR’s risk-adjusted
capitalisation improved substantially. A.M. Best expects the company’s
risk-adjusted capitalisation to remain supportive of the ratings through
2014 and into 2015, although SCR’s retained earnings are dampened by the
cost associated with the explicit guarantee provided by the Moroccan
state and the high dividend requirements of its main shareholder,
state-owned Caisse de Dépôt et de Gestion.

SCR maintains a strong competitive position as the leading reinsurer in
the Moroccan market. Following the withdrawal of mandatory cessions and
in order to maintain its profile, SCR is replacing lost business through
setting up quota share arrangements with domestic insurers. SCR’s
business profile should also benefit from its pivotal role in the new
natural catastrophe protection system in Morocco, which is expected to
be implemented within the next year as an underwriting pool managed by
SCR.

Despite SCR producing strong results in recent years, prospective
earnings are likely to be volatile as a result of the company’s plans to
expand its footprint into Africa and the Middle East, while facing
increased competition in its domestic market.

Continued strong operating performance and further improvement in
risk-adjusted capitalisation could lead to positive rating actions.
Downward rating pressure could occur if SCR has a prolonged
deterioration in technical performance, if the socio-political and
economic conditions in Morocco were to deteriorate, or if the terms of
the current explicit state guarantee were to become less favourable to
the company.

The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.

This rating announcement has been issued by A.M. Best Europe – Rating
Services Limited, which is a subsidiary of A.M. Best Company.
A.M. Best Company is the world's oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.